How the Noordas Found Out & the Rest of the Dirt: The Canopy-Noorda Answer (Yarro v Canopy)

Wednesday, March 09 2005 @ 01:19 AM EST

This is by far the most spectacularly interesting document so far in the just settled Canopy-Noorda/Yarro et al litigation. Thanks to Frank Sorenson, who stopped by the courthouse and picked up this Canopy-Noorda-NFT Trust Answer [PDF] to the Yarro-Mott-Christensen complaint, we find out the whole story as they tell it. [Warning for those on dialup, it's a long download.]

I've wanted to know what happened to tip off the Noorda/Canopy side that there was something going on that eventually led them to terminate the three employees. Haven't you wondered that too? Was it Terry Peterson? Val Kreidel, the daughter? Who?

Now they tell us their story. Beginning on page 13 of the PDF, they say it was like this. Back in March of 2004, there was a Board meeting, just as the Yarro complaint says. But here the story diverges.

The Noorda account is that prior to the meeting Mr. Peterson suggested the Noordas request and review Canopy financial information. At the meeting, both Noordas expressed concern about the company's finances, "including, specifically, excessive bonuses that Plaintiffs had caused Canopy to pay to Plaintiffs and Canopy's other employees." it was Mrs. Noorda in particular, the Answer says, who "expressed strong disapproval of such bonuses." After that, it says that Mr. Noorda told his wife he wanted to terminate the trio's employment and she agreed. So, it was Mr. Peterson who first seems to have noticed the financial machinations that led to the termination.

They also deny that their daughter had no involvement in Canopy. And they deny that any actions taken by them or by "Canopy's management subsequent to December 17, 2004 played any role in the suicide of Robert Penrose. The NFT Defendants further assert that Plaintiffs have made this baseless accusation in bad faith and in violation of Utah R. Civ. P. 11." You can read that rule here:

(b) Representations to court. By presenting a pleading, written motion, or other paper to the court (whether by signing, filing, submitting, or later advocating), an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,

(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;

(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;

(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and

(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.

(c) Sanctions. If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation.

They also deny that they or "mean" Mr. Mustard caused any of the other employees to quit. Instead, they say, they quit "voluntarily and/or as a result of Plaintiffs' influence and/or encouragement."

On page 21, in paragraph 117, they say that while they are willing to permit an examination of Mr. Noorda, "such an exam is irrelevant to, and not probative of, the issue of Mr. Noorda's competence on December 17, 2004." In other words, even if Mr. Noorda was found incompetent in March of 2005, that would not prove that he was incompetent on December 17, 2004. No wonder this case settled. Yarro and his team would have to find a way to prove that Mr. Noorda was incompetent back in December. How do you do that? And then the piece de resistance, their Fifth Defense:

The allegations and claims asserted in the Complaint, in each purported cause of action alleged therein, have always been and continue to be frivolous, unreasonable, and groundless. Plaintiffs brought this action in bad faith. See Utah Code Ann. § 78-27-56.

(1) In civil actions, the court shall award reasonable attorney's fees to a prevailing party if the court determines that the action or defense to the action was without merit and not brought or asserted in good faith, except under Subsection (2).

(2) The court, in its discretion, may award no fees or limited fees against a party under Subsection (1), but only if the court:

(a) finds the party has filed an affidavit of impecuniosity in the action before the court; or

(b) the court enters in the record the reason for not awarding fees under the provisions of Subsection (1).

When you say the word "frivolous" in a lawsuit, you are talking about getting the other side to pay your legal fees. You mean that the case has no way to prevail and shouldn't have been brought in the first place and so you want them to pay your legal bills for forcing you to go through the experience for nothing. And sure enough, they ask that plaintiffs pay their attorneys' fees.

Their Tenth Defense is that plaintiffs' claims are barred based on the doctrine of unclean hands. They also say that their claim for a preliminary injunction is improper because the plaintiffs' "purported options are invalid and do not give them any substantive rights with regard to the management and/or control of Canopy." In other words, they have no right to try to manage or control Canopy, and so they have no right to bring an action to try to gain control back, because their options are invalid, presumably due to the way they were obtained.

And their 16th defense is that plaintiffs can't sue them for having breached any contractual obligations, because the plaintiffs had already committed "prior material breaches." This is saying, what contract? You already broke it, and now you want the court to enforce just our side of the deal you breached?

These Canopy lawyers thought of everything to throw in there. Like the song says, you have to know when to hold them and know when to fold them, and a settlement must have looked mighty good after Yarro, Mott and Christensen's attorneys read this Answer and realized the mountain they'd need to climb in this litigation to prevail.

But they aren't finished. Now come the counterclaims. First, they add "additional parties", John Does 1 through 10, "persons whose identities are currently unknown who assisted, or otherwise acted in concert with, Yarro, Mott, and Christensen." These folks, they say, acted in concert with the trio, "to cause and encourage Canopy employees to terminate their employment in order to create the appearance that Canopy's current management was doomed to failure, for the purpose of enabling Yarro, Mott, and Christensen to seek reinstatement through injunction and continue their scheme to profit at Canopy's expense through excessive and unfair compensation." They also caused or encouraged portfolio companies to "doubt the authority of Canopy's current management in an effort to obstruct current management's ability to complete business transactions" for the same reason. They even accuse them of "causing or attempting to cause irreparable harm to Canopy, or create the illusion thereof" to try to get themselves reinstated through injunction.

They say that, while the trio previously seldom socialized with employees, post-termination they have "arranged and held several meetings of current and former Canopy employees at which Canopy business, including current working conditions, was discussed." Yowser. This tells the Yarro team that somebody ratted on them to the Canopy team, likely a current employee invited to the meetings, who went back and told on them.

Worse, the document goes on to allege, the trio contacted "principals and board members of Canopy portfolio companies" and encouraged them to "not deal with and/or recognize Canopy's current management." Not only that, they appeared, after their terminations, at board meetings of portfolio companies "purporting to represent Canopy without Canopy's consent," and they are accused of "wrongfully and surreptitiously" obtaining a copy of Canopy's back-up of its computer system, on which all of Canopy's electronic data was stored." They say Allan Smart helped them to make a copy of the back-up of the computer system, on which "commercially sensitive and confidential information" was stored. On that basis, they accuse Smart of violating a Confidentiality Agreement he signed in 2001. They also name Smart as encouraging the employees who quit to do so and to disparage the current management to third parties, in violation of his Confidentiality Agreement. They ask for damages, in an amount to be determined at trial.

They go on to allege that the trio knew by 1998 that Mr. Noorda's "memory and business judgment were deteriorating." So, they allege, they set in motion a scheme to personally profit "by exercising undue influence" over the Noordas. "The above-described acts of Yarro, Mott and Christensen were performed intentionally, knowingly, and with reckless indifference toward, and a disregard of, the rights of Canopy and the Trust." They ask for punitive damages.

We also find out that one purpose of the Trust is to care for the needs of a Noorda son with special needs. They ask for a jury trial. Can you imagine a jury in Utah listening to allegations that the trio in effect diverted money away from the LDS Church, two nonprofit charitable organizations, and a special needs child? Sheesh. They'd probably vote to send them to the electric chair, methinks, or however they do it in Utah.